China targets wasted production, taking aim at pollution and overcapacity

Beijing on Wednesday pledged to weed out China’s “backward production capacity” with high levels of energy consumption and pollution – a move set to meet its carbon-reduction goals and also ease industrial-overcapacity concerns voiced by Western politicians.

The country will also raise the share and utility rate of renewable energy in its electricity grid by enhancing power storage capacity, while “strictly and reasonably” controlling coal consumption, according to the 2024-25 Energy Saving and Carbon Reduction Action Plan issued by the State Council.

It said the plan has been formulated to “adopt pragmatic and effective measures”, and “make every effort to complete the binding targets for energy conservation and carbon reduction in the 14th five-year plan”.

That long-term economic-development template, rolled out in 2020, set an 18 per cent reduction target for carbon dioxide emissions per unit of GDP from 2021-25.

The new action plan specifically named four industrial sectors in which wasted production capacity should be wiped out: steel, petrochemicals, non-ferrous metals, and building materials, with new capacity strictly prohibited or “strictly restricted” in specific subsectors.

“More specific quantitative targets and thresholds are set in this plan with an emphasis on energy-saving of manufacturing activities and reducing energy consumption and waste,” said Jingwei Jia, associate director of ESG Research at Sustainable Fitch.

“This is a clear improvement in terms of the ambition of reducing emission, enhancing technical standards and encouraging the structural shift in production of key emitters, compared with the broad guidelines set previously,” she said.

China’s energy intensity of economic activity is very high, which in turn creates a massive strategic opportunity, said Dong Xuyang, China energy policy analyst at Climate Energy Finance – an independent think tank based in Sydney.

“This is certainly a step in the right direction, as China is experiencing a steel-production glut while demand from the domestic real estate sector has decreased significantly, which has led to an excessive increase in steel exports.

“But China’s crude steel is made using the highest carbon intensity when compared with other major steel-producing nations,” Dong said.

Peaking China’s steel production can seriously help to accelerate decarbonising China’s economy, potentially pulling peak emissions targets forward, but more ambitious and specific regulations are needed for substantial changes, she added.

The new plan also indicated that an important mission currently for China is to improve the consumption capacity of renewable energy, analysts said.

Having emerged as a global leader in the green sector with production expanding at an unprecedented pace, China’s installed capacity of renewable energy exceeded 1.45 billion kilowatts in 2023, accounting for more than half of the country’s total installed power-generation capacity, according to data released by the National Energy Administration.

But key problems with renewable energy in China are its volatility in electricity generation and geographical discrepancy in production and consumption. Thus, much of the power generated through solar panels and wind turbines in China’s far west region is currently wasted.

Proposals in the new plan include accelerating the construction of large-scale transmission channels to improve interprovincial and Inter-Regional power transmission capabilities, facilitating the transformation of distribution networks to enhance the carrying capacity of distributed new energy, as well as actively developing pumped hydropower storage and new energy storage.

It said the installed capacity of new energy storage in China would exceed 40GW at the end of 2025 – a target that looks likely to be achieved this year, Dong said. China had a total of 35GW of capacity as of the end of March, according to the China Electricity Council.

Meanwhile, the new plan allows for wind- and solar-power curtailments of up to 10 per cent in “areas with better resource conditions”, compared with the previous curtailment rate of 5 per cent.

“This an important near-term concession until battery-storage-power-station and pumped-storage-hydroelectricity deployments catch up,” Dong said.

“It could be a real signal of policy clarity to say China is not going to allow grid-integration issues in the near term to slow down their massive, mutually reinforcing, world-leading-decarbonisation, and electrification-of-everything strategies,” she added.

Meanwhile, the country will strengthen the clean and efficient utilisation of coal and promote the low-carbon transformation of coal-fired power plants, the plan said.

“Increasing the use of ‘clean coal’ is still the near-term priority of China’s energy policy due to energy security concerns,” Jia said.

Heavily relying on coal for energy consumption, China once launched campaign-style actions to reduce the use of coal in power generation, which led to a prolonged power crisis in much of the country in the fall of 2021.

Last summer, President Xi Jinping said that, to reduce energy intensity, the country should “establish the new before abolishing the old”, indicating a shift away from the previous radical decarbonisation approach.

The action plan also mentioned that the use of other cleaner energy sources such as natural gas and biomass for heat generation will also be promoted.